The financial instruments and commodities trading industry is at the core of many industries, including agriculture, base metals, energy, foreign exchange and others. Generally speaking, trades are effectuated between two separate entities or parties (each commonly referred to as a “counterpart”). The counterparts routinely engage in financial transactions, such as foreign exchange transactions and interest rate transactions, the buying and selling of financial instruments, and commodities. The particular types of financial instruments and commodities that are traded between counterparts are too numerous to name. Common concerns, however, with respect to risk exposure exist among the many parties engaging in the trading business and across each of the different financial instruments and commodities.
A counterpart to a financial transaction who has the capacity to provide and negotiate a price for the transaction is commonly referred to and is referred to herein as the “price provider” (also commonly referred to as a “market maker” or as an “fx liquidity provider”). A price provider is generally a financial institution, like a commercial bank, a trading company, or an exchange. A counterpart who engages in price negotiations with a price provider for a trade may be referred to as a “customer”. Customers can be any entity such as a financial institution, a corporation, a hedge fund, a pension fund, an institutional investor, a commercial producer or user, a sovereign entity, and the like but may also refer to any entity or individual who engages in or wishes to engage in a trade with a price provider. It should be emphasized though that an entity that is considered a price provider for one transaction may fill the role of the “customer” for another transaction.
Counterparts presently conduct trades in many ways, several of which are shown in FIG. 1. Counterparts may deal with one another by telephones 10, 12 connected through a telephone network 14. The details of the trade are discussed among representatives of the two counterparts and manually written onto trade tickets to formalize and memorialize the trade. The telephone conversation may be tape-recorded to insure the integrity of the trade. Much of the trading between counterparts has been traditionally conducted in this manner and still is conducted this way.
A second method of conducting transactions and negotiations for transactions between counterparts emerged with the advent of computer systems and the ability to communicate data electronically via telephone lines. In this method, computerized systems such as Reuters, Bloomberg, and EBS (Electronic Broking Service used primarily for interbank data exchange) 20 serve as electronic portals (“portal networks” or “trading interfaces”) for conducting trading electronically between counterparts, among other things. In such systems, each counterpart has a computer terminal 22, 24 with a keyboard or other user interface device (not shown) and an associated display. Multiple counterparts are generally connected to the portal on either side of the portal.
A counterpart who wishes to conduct business over a particular portal is only able to conduct business with other subscribers to that specific portal or with counterparts connected to that specific portal. To conduct business with counterparts who only subscribe to a different portal, a separate subscription to the second portal is required. For any portal that can be accessed only through a dedicated terminal or whose full portal functionality can also be accessed in this manner, each price provider must maintain multiple terminals in order to achieve the maximum advantages of conducting business with many customers.
Each portal may utilize secure, dedicated lines to transmit the data from counterpart to counterpart. In this way, such systems provide security from third party interruption or interception. In operation, the initiating customer contacts the price provider with a request for a price quote (a “price”) using the portal for a particular financial instrument or commodity through a terminal for that portal. The customer price quote request will comprise various types of information about the customer such as the customer name and other necessary identification information, the type of transaction that the customer wishes to conduct (e.g. the financial instrument to be traded, the foreign currency to be exchanged such as yen/$ or $/yen), and the name(s) of the price provider or providers to whom the request should be sent. The portal takes the request and routes it to the price provider via the portal's data center. The parties may engage in an exchange of trade information for negotiating and finalizing the particular details of the trade using a portal-specific defined set of data formats. However, on certain portals such as Reuters, the customers may optionally engage in negotiations using a free-format text-based conversation which the portal can parse to determine the trade information that the customer and price provider wish to exchange. In other instances, rather than negotiate prices, the price provider may publish a price (or “make a market”) for the particular financial instrument or commodity that is the subject of the trade. Once the transaction is completed and accepted by both counterparts, the system generates an electronic ticket containing the trade details. For example, the Reuters Direct Dealer system produces a trade ticket using a proprietary ticket output feed (TOF) format. Bloomberg uses a FIX (financial information exchange protocol) format. Other portals use other formats.
Notably, not every system generates an electronic ticket. Moreover, merely having the capability of creating an electronic ticket does not ensure the ability to efficiently use it. The price providers are generally not equipped to electronically interface every portal's proprietary data format to their internal systems, including trading and back office platforms. Thus, automated interaction between systems is not efficient at this time.
More recently, Web-based systems 30 utilizing graphical user interfaces (GUIs) and internet protocol (IP) data transmissions, such as TCP/IP, have been developed for the purpose of initiating and completing financial instrument and commodities trades between counterparts 32, 34. These Web-based systems have become a significant third method of conducting transactions and negotiations related to the proposed transactions among counterparts. Web-based systems operate in substantially the same manner to effectuate trades as the Reuters-type systems, except that the network can be accessed from anywhere using a terminal with Internet access.
Each of the above-discussed trading systems have shortcomings which are common among them. To satisfy the many needs and preferences of its customers, a price provider must offer its customers the ability to deal through any one of the types of systems currently known. This flexibility, however, currently requires the price provider to purchase and install separate hardware and software systems unique to each particular trading system, thereby increasing the cost and inefficiencies of the trading business. The hardware required at each price provider for systems like Reuters and Bloomberg includes hardware to connect to each of the portals and can include specialized monitors and keyboards. The specialized software at each price provider can include separate application program interfaces (APIs) for each portal, which translate the data from the portal-specific format to an appropriate format for use by the price provider's internal systems. The APIs are required for the price provider to achieve “straight through processing” between the portals and the price provider's internal systems.
Because the software for the known trading systems are not compatible with one another, there is no unified system for capturing the trade details for the trades made through the many systems or for automatically importing the trade details into a back-office settlement system. To capture and import the trade details, the price provider must design and install separate middleware for each portal. As described above, it is inefficient and costly to settle trades completed on such systems and may expose the price provider to operational risk due to human error in manually capturing the trade details and inputting them into the back-office settlement system. Capture of trade data in a uniform format would be beneficial because it eliminates the potential for human error in manually inputting trade details into a back-office settlement system. Furthermore, trades could be instantly recognized by the back-office settlement system and used to manage the various credit concerns associated with dealing with particular entities or individuals.
Moreover, each system utilizes different interfaces, including different screen layouts and different mappings of system commands to keys. The personnel must be trained in the particular conventions used by each separate system if personnel are to be able to operate the systems interchangeably. Of greater concern though is that an employee will press an incorrect key or otherwise enter an incorrect command at a terminal for a first portal because that employee is used to operating a terminal for a second different portal. For example, pressing an “F8” key at an interface to a first portal may cause the trade to be completed, whereas pressing the “F8” key at an interface to a second portal may cause the trade to be cancelled. This is inefficient and the overwhelming number of terminals exposes the price provider to both operational and market risks.
Another shortcoming of the prior art systems is that the products to be traded are packaged by portal rather than by type of product, with each portal covering a different range of products to be traded. This means that, for example, a first portal makes available a first group of products, such as precious metals and base metals, and a second portal makes available a second group of products such as foreign exchange and base metals. A trader must review multiple screens on multiple portals to be able to comprehensively review information available through the various portals in order to make decisions such as pricing for a specific type of product, such as base metals in this example, whether to make a price quote to a customer, and whether to withdraw a price quote. This packaging of information is inefficient and does not fit the typical organization of trader expertise and skills at a price provider where each trader is typically an expert in pricing of only one or a few types of financial instruments or commodities. It would be preferable to be able to package pricing information for a single type of product, such as base metals, to aggregate all pricing information for that product on all portals on a single screen. Comprehensive information from multiple portals for a particular product can then be delivered to a trader who is an expert in that product.
These problems are illustrated in FIG. 2 which depicts an example of one possible transaction system in which there is a relationship between three customers and two price providers under the current prior art regime. In this example, the portals are arranged to connect a certain set of price providers and subscribing customers. Customer.sub.131 50 is a first customer who has access to Price Provider 1 40 and Price Provider 2 46 using the Atriax Web portal 52. Atriax 52 connects the customer through the Internet 100 and Atriax's data center 53 to Price Providers 1 and 2 where Price Providers 1 and 2 monitor an Atriax Web browser 102 (or a separate Web page accessed using a conventional browser). Customer.sub.132 60 is a second customer who has access to Price Providers 1 and 2 through a Bloomberg terminal 62 or may access Price Provider 2 through a Price Provider 2 Web site 64. The Bloomberg terminal 62 connects to the Bloomberg network 90 and Bloomberg's data center 91 which in turn is connected to a separate Bloomberg terminal 92 for monitoring at each of Price Providers 1 and 2. The Price Provider 2 Web site 64 connects through the Internet 100 to a Price Provider 2 data center 65 which Price Provider 2 accesses for monitoring via a Price Provider 2 browser 108. Each of the Web browsers may be displayed on the same monitor in different windows or on separate monitors. As illustrated, the Price Provider 1 does not have access to the Price Provider 2 Web site 64. Customer.sub.133 70 has access to Price Providers 1 and 2 through a Reuters terminal 72, the “Currenex” Web site 74 (via Internet 100 and Currenex data center 75), and the Treasury Connect Web site 76 (via Internet 100 and Treasury Connect data center 77).
For efficient processing, trade information for trades made at Price Provider 1 40 can be passed to Price Provider 1's internal computer systems 44. However, this requires Price Provider 1 to integrate hardware and middleware associated with each terminal, and build a separate API for each portal to interface with the price provider's internal systems 44, 49. There is a large variation of formats in which the portals provide trade confirmations, at least most, if not all, of the formats being incompatible. For example, Reuters 72 uses its proprietary TOF format 92. Bloomberg 60 uses the FIX format 94, Atriax 52 might use an XML-based data format XML1 110, like FinXML (financial extensible markup language) or FPML (financial products markup language) formats, Treasury Connect 76 may use a second XML-based format XML2 112, Currenex may use a third XML format XML3 114, and Price Provider 2's Web site 64 may use yet another XML-based format (XML4) 116. Price Provider 2 faces similar challenges in interfacing these varying formats with its internal systems 49.
Another item of particular concern to price providers is commonly referred to as “price aging”. A price provider may have provided a particular price or a series of prices for trading a particular financial instrument or commodity. As the market moves in a particular direction, it may be desirable for the price provider to retract (withdraw) a price from one or all of the systems. There is currently no way to automatically retract the prices simultaneously from each portal's system. Besides the inefficiency of retracting prices separately from each portal, the time lost in manually retracting prices from each system may cause a stale or undesirable price to be hit or accepted by a counterpart, thereby exposing the price provider to market risk.
At times, a customer may have insufficient credit or may wish to obtain a credit line from a third party for some other reason. In this case, before arranging a trade, the customer must first obtain a credit line from a third party (a “credit intermediary”) who provides credit intermediation between the customer and the price provider. Where there is a credit intermediary involved, yet another shortcoming of the presently known systems is that the various portal systems do not enable credit intermediaries to adequately manage the credit exposure with their customers. The ability to manage such risk is particularly important when a creditworthy financial institution acts as a credit intermediary for a customer who otherwise might not be able to trade due to a lack of credit. This is because the credit intermediary also assumes the role of a principal on behalf of all transactions entered into by the customer and, as principal, is liable to the price providers with whom the customer is trading in the name of the principal.
Currently, there is no efficient way of managing such credit risk in a live trading environment. While the customer can deal through any of the known trading systems and portals, there is no centralized mechanism for gathering trade details across these portals and hence no efficient way of determining risk exposure in real-time. In addition, there is no uniform system for controlling the customer's access to price providers which the credit intermediary has authorized. Consequently, the price providers are also exposed to a degree of risk, because they may be subject to limits in the size of the transactions which the customer may initiate where the credit intermediary is a principal and will have difficulty monitoring such limits with the current types of trading systems.
Therefore, there is a need and desire to provide a method and system that seamlessly integrates the features of the many different proprietary electronic trading systems/portals (of course, other than the telephone trading) to enable price providers to centrally interact with the portals in a way that reduces the described risks and costs. This includes the ability to monitor trading risk across multiple portals and efficiently manage trading work flow. Furthermore, there is a need to provide a system which utilizes a standard data transmission format to permit automated pricing engines to service many portals and to permit the automated capture of trade details. Yet another need exists for a system that enables credit intermediaries to efficiently monitor and manage risk exposure created by its customers and to selectively limit the price providers with which customers may trade and the size of such transactions. The present inventive concepts, which are described in connection with the following embodiments, satisfy these and other needs.